FOCUS: Profit estimates slashed after Dow, DuPont Q3 results

24 October 2012 22:39[Source: ICIS news]

NEW YORK (ICIS)--The global chemical sector was splashed with a cold dose of reality with the earnings releases of US-based producers Dow Chemical and DuPont. Both have a substantial presence worldwide, with the majority of their sales outside the US.

Given the poor results and management guidance, investors will be forced to reset their expectations for the fourth quarter of 2012 and the start of 2013.

Dow Chemical posted earnings per share of $0.42 (€0.32) – down by 32% from the year-ago period, but ahead of consensus of $0.37. Sales fell by 7% year on year on an adjusted basis on 2% higher volumes and 9% lower prices.

“We recognise that these difficult conditions may have extended staying power, as the new reality is that we are operating in a slow-growth and volatile world,” said Dow CEO Andrew Liveris.

Yet investors were encouraged by the company’s restructuring plan, sending its shares up by $1.33, or 4.7%, to $29.88 on 24 October. Dow will take actions to combat headwinds, including the closure of around 20 plants and the elimination of 2,400 jobs (5% of workforce) to save about $500m/year by the end of 2014.

Dow will also slash capital expenditures by $100m in 2012 from 2011 levels of $2.69bn, and another $700m in 2013. It will also halt $200m in new business growth spending.

However, major petrochemical projects, such as its Sadara joint venture with Saudi Aramco and its US Gulf Coast investments will proceed as planned.

Sales were down by 9%, with volumes off by 5% and prices up by 1%. Volume declines were most pronounced in the Asia Pacific region (-10%). Weakness was driven by its titanium dioxide (TiO2) and electronics businesses.

Its stock dropped by over 9% on the results on 23 October. The firm also will cut 1,500 jobs in the next 12-18 months as part of a plan to save $450m/year.

DuPont also looked to a weak fourth quarter of 2012 with earnings per share in the $0.03-0.08 range versus $0.35 in the fourth quarter of 2011.

Jeffrey Zekauskas, analyst at investment bank J P Morgan, said earnings “will have challenges to growth in 2013 and are likely to be substantially below our previous forecasts, given the severity of falling TiO2 prices, weakness in the solar area and surprisingly little resilience in DuPont’s construction-related operations”.